The Impact of High-Frequency Trading on Stock Market Liquidity Measures
38 Pages Posted: 13 Jun 2013 Last revised: 26 Oct 2015
Date Written: June 1, 2013
Abstract
For the highly traded S&P 500 exchange traded fund SPY, we find that, over time, transaction size has been decreasing while the number of consecutive buy or sell transactions has been increasing due to the increased prevalence of high frequency trading and order splitting. Collapsing sequences of buy or sell transactions into single transactions produces a time series that has a time-stationary distribution and is more tractable for empirical market microstructure models. If sequences are not collapsed, measures of illiquidity are underestimated, implying that increased high-frequency trading may not necessarily be associated with improved liquidity.
Keywords: microstructure, liquidity, high-frequency trading, HFT
JEL Classification: G10, N20
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Optimal Trading Strategy and Supply/Demand Dynamics
By Anna A. Obizhaeva and Jiang Wang
-
Optimal Trading Strategy and Supply/Demand Dynamics
By Anna A. Obizhaeva and Jiang Wang
-
Optimal Trading Strategy and Supply/Demand Dynamics
By Anna A. Obizhaeva and Jiang Wang
-
Optimal Execution Strategies in Limit Order Books with General Shape Functions
By Aurélien Alfonsi, Antje Fruth, ...
-
By Olaf Korn and Alexander Kempf
-
Quasi-Arbitrage and Price Manipulation
By Gur Huberman and Werner Stanzl
-
Fluctuations and Response in Financial Markets: The Subtle Nature of 'Random' Price Changes
By Jean-philippe Bouchaud, Yuval Gefen, ...
-
By Gur Huberman and Werner Stanzl
-
How Markets Slowly Digest Changes in Supply and Demand
By Jean-philippe Bouchaud, J. Doyne Farmer, ...
-
No-Dynamic-Arbitrage and Market Impact
By Jim Gatheral